Archive for October, 2009

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Transferring UK Pensions to Isle of Man QROPS

Wednesday, October 21st, 2009

When migrating overseas many UK pension members investigate the possibility of transferring their UK schemes to overseas pensions. Since 6th April 2006 the overseas scheme would have to register and be approved by the UK’s Her Majesty’s Revenue and Customs (HMRC) as a QROPS (Qualifying Recognized Overseas Pension Scheme) in order to be able to accept UK pension transfer money.

Many jurisdictions, throughout the world, have QROPS. One such jurisdiction, that is close to home, is the Isle of Man. What are some if the considerations that someone would need to take into account with Isle of Man QROPS?

Amongst the main points to consider will always be how pension funds, transferred to a QROPS (anywhere in the world) would be treated for tax and what level of retirement benefits can they provide?

An Isle of Man QROPS will pay to it’s members income at UK Government Actuary Department (GAD) rates within the QROPS ‘reporting period’ – which is 5 complete tax years of the member’s overseas residency. This income will be taxed at source at a rate of 18% – although there is an allowance for the first £2,120 per annum (for tax year 2009/10) on this income for Isle of Man non-residents. (Although a non-resident may have to pay further income tax on receipt of QROPS income in their country of residence).

As far as the payment of tax free cash is concerned, a member can receive 25% of the fund as a tax free lump sum if this is paid out within the (QROPS) reporting period. If the member waits until after the 5 year reporting period – and they haven’t drawn any tax free cash previously – 30% of the fund is available as a lump sum.

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Will the GMP in my Final Salary Scheme Transfer to my New Zealand QROPS?

Tuesday, October 20th, 2009

If you are a member of a UK contracted out final salary scheme, since before April 1997, there is every likelihood that you have an element of GMP (guaranteed minimum pension) in your scheme. Migrating pension members, looking to transfer to a New Zealand QROPS (Qualifying Recognized Overseas Pension scheme), would have to consider the benefits of their GMP.
GMP is the bare minimum an employer’s final salary scheme has to provide for its members contracted out of the state earnings related pension (SERPS) between 6th April 1978 to 5th April 1997. GMP is an undertaking to pay a certain final salary benefit at retirement age 65 for men and age 60 for women.
When someone is looking at UK pension transfer to New Zealand QROPS, the transferring final salary scheme will offer the pension benefits (including the GMP) in the form of a transfer value. This value would be the amount of money that the New Zealand QROPS receives.
At retirement, the New Zealand QROPS would have a duty to pay the member either cash or income from the scheme but would NOT be required to match the GMP benefits the original final salary scheme provided.
Although the benefits from a New Zealand QROPS are paid tax free, there is no guarantee that the income would last you for ever. This may not be a problem if you are looking at the more flexible income from a QROPS, however, final salary scheme should take specialist QROPS advice from, Global QROPS Ltd, before transferring.

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An Unsecured (Drawdown) Pension Transfer to Australia

Monday, October 19th, 2009

From A-Day (6th April 2006) the UK Her Majesty’s Revenue and Customs (HMRC) has permitted unsecured pension funds to be transferred to another pension scheme after income drawdown has commenced.  For migrants looking at a pension transfer to Australia, where income drawdown has commenced on their UK schemes, the option to transfer is still available.
The main restriction, for those looking at an unsecured pension transfer to Australia, is that the receiving scheme has to be an Australian QROPS (Qualifying Recognized Overseas Pension Scheme). There are, however, many superannuation schemes that are approved as QROPS by HMRC so, with the appropriate advice, this should not be a problem.
A second restriction would be on the benefits that can be taken during the QROPS reporting period. Should an unsecured pension transfer to Australia be completed, any benefits paid from the Australian QROPS would have to be in line with the UK GAD (Government Actuary Department Rates). Any payments to the member, in access of UK maximums during this period, would be subject to an unauthorized payment charge.
After the QROPS reporting period, which is 5 complete UK years tax years of a member’s overseas residency, payments made from the scheme can revert to the local Australian rules. UK pension members should, therefore, be aware of all benefits and restrictions before they affect a pension transfer to Australia – especially if they are already drawing an income or tax free cash from their UK pension fund.

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Can I Transfer my Unsecured Pension to a QROPS?

Sunday, October 18th, 2009

For many individuals, that have yet to draw on their UK pension funds, a transfer an overseas pension is an option – providing the scheme is registered as a Qualifying Recognized Overseas Pension Scheme (QROPS).

However, what are the QROPS options for those people migrating who are already drawing on their UK pension funds?

Global QROPS Ltd are UK based independent financial advisers that specialize in providing QROPS advice. Many migrating individuals, that we have spoken to, are unsure as to whether taking benefits from a UK pension scheme prevents a transfer to a QROPS.

The answer to the above question depends on how the benefits are taken. For the migrating pensioners that have already purchased an annuity (secured pension) with their UK pension funds or have benefits paying directly from their employer’s final salary scheme, a transfer to a QROPS is no longer available for those funds. For people that are taking their benefits in the form of drawdown (unsecured pension) QROPS is very much still an option.

Since 6th April 2006, UK pension funds that are drawing down can transfer to another UK registered pension scheme, including QROPS. Indeed, since April 2006 the option to take tax free cash from these funds (at pension age) and deferring income benefits has been available.

However, if a migrating pension member is still within the 5 year QROPS reporting period, the benefits that an individual can take from their QROPS – in respect of the unsecured pension transfer in – would have to be in line with the UK pension income rates or the member could face an unauthorized payment charge.

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GMP Transfers to QROPS

Saturday, October 17th, 2009

GMP (guaranteed minimum pension) are ‘contracted out’ rights built up in a final salary (defined benefits) scheme between 6th April 1978 and 5th April 1997. QROPS (Qualifying Recognized Overseas Pension Schemes), on the other hand, are a more recent concept – introduced on 6th April 2006.
For UK final salary pension schemes, an employer would make the choice as to whether their employees national insurance contributions (NICs), that were earmarked to contribute to the second tier of the basic state pension, would be re-directed into the final salary scheme or not. If the NICs were redirected to the scheme, the scheme would then be considered a Contracted Out Final Salary Scheme (COSR). The benefits built up in this fashion (between April 1978 and April 1997) would provide GMP for the member at retirement.
As Final Salary schemes are gradually phased out, and as time passes, the amount of people with GMP benefits will become rare. Their will be, however, some people migrating that will have GMP in their pensions and will look for advice as to whether this benefit can transfer to a QROPS.
Although GMP transfers to QROPS are possible in the majority of circumstances, an individual has to be aware of the benefits that they would be giving up from their final salary scheme by transferring. Most QROPS are likely to be money purchase (defined contribution) arrangements and would be unlikely to match the guarantees.
There are, of course, other considerations – such as tax and flexible benefits – when using a QROPS, therefore an individual with GMP must take suitable advice from a QROPS specialist in the UK when weighing up their options.

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Global QROPS Ltd’s New Zealand clients UK State Pension Deferral Options

Friday, October 16th, 2009

Individuals that migrate to New Zealand refer to Global QROPS Ltd when deciding on whether a UK pension transfer to New Zealand is the appropriate strategy for their accrued personal or company pension benefits.
However, what options are open to an individual in a position to claim their UK State Pension rights?
Before the result of the appeal to the European Court of Human Rights is finalized, regarding indexation on UK State Pensions in payment for New Zealand migrants, a potential UK migrant to New Zealand may wish to consider whether they want their basic state pension to come into payment immediately at retirement age or defer this.
Currently, if a retiring individual with UK State Pension rights, living in New Zealand, decides to take their State benefits, the payments are effectively “frozen” and no increases apply to the payments throughout retirement. (This does not apply to company or personal pensions). This is unlike State Pension payments for people living in the UK, European Economic Area (EEA) countries and retirees who have migrated to countries with a reciprocal agreement with the UK. This can put New Zealand migrants at a financial disadvantage.
One option that Global QROPS Ltd advises, if an individual does not rely upon the UK State Pension to supplement their retirement income, is the deferral of this payment. One of the benefits of this advice is that the UK State pension increases in deferral – giving the individual a higher State Pension starting rate throughout retirement.
An individual can speak to an adviser at Global QROPS Ltd regarding UK State Pensions as well as their UK company or personal pension transfer to New Zealand.

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When can I retire with my QROPS?

Thursday, October 15th, 2009

Qualifying Recognized Overseas Pensions Schemes (QROPS) have been able to receive transferred in money from a UK pension scheme since 6th April 2006.

 A common question from many people living abroad is, if I transfer from a UK scheme to a QROPS, when can I take my pension benefits?

The first point that an expat should do is take QROPS advice from a specialist that is aware of the UK legislation. UK legislation is key because for 5 complete tax years of a UK pension member’s overseas residency, the retirement age from the QROPS must be the same as that permitted under UK legislation. For a QROPS to release benefits to a member, in respect of their UK pension transfer funds, before the permitted UK retirement age (other than circumstances such as serious ill health), would potentially lead to the member incurring an unauthorised payment charge.

Significance of 6th April 2010 

From 6th April 2010, the retirement age from virtually all UK registered schemes (and QROPS) will be age 55. For members of overseas pension schemes whose date of birth falls shortly after 5th April 1960, they will have to wait around 5 years longer to access their UK pension benefits than someone born on or before 5th April 1960.

For those members of UK pension schemes or QROPS that are aged between 50 and 54 before 5th April 2010, advice should be taken as to whether benefits should be accessed now before the window of opportunity is delayed to age 55.

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QROPS and the UK Lifetime Allowance

Wednesday, October 14th, 2009

On the 6th April 2006 (A-day) major changes happened to UK pensions as a result of Pensions Simplification. Amongst the changes introduced were QROPS (Qualifying Recognized Overseas Pension Schemes) and the pension lifetime allowance. Broadly speaking, QROPS are overseas pension schemes that have been registered and approved by the UK Her Majesty’s Revenue and Customs (HMRC) to accept transfers of UK pension funds. The lifetime allowance, basically, is a tax allowance that limits the amount of tax privileges on an individual’s total UK pension benefit over their lifetime. It was set at £1,500,000 in tax year 2006/07 and will increase to £1,800,000 by 2010/11.
Each time an individual brings new benefits into payment under a UK pension scheme it is known as a benefit crystallization event (BCE). Each time benefits are taken, the ‘crystallized’ value of the benefits must be tested against the individual pension member’s available lifetime allowance.
How does this affect someone looking to transfer to a QROPS scheme? In short, a transfer of a UK pension fund to a QROPS is a BCE. If the crystallized value of the pension funds are above the remaining lifetime allowance available, a lifetime allowance tax charge will apply to the excess amount.
In some cases, such as when an individual can apply for enhanced protection, a UK pension fund value above the lifetime allowance can be transferred to a QROPS without penalty. However, an individual, who has funds approaching the lifetime allowance would, be wise to take specialist advice before transferring to QROPS.

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QROPS Technical Issue: Tax on a UK Pension Transfer to Australia

Sunday, October 11th, 2009

UK pension members with large funds, who are migrating to Australia, need to be aware of the possible high tax implications from both the Australian Tax Office (ATO) and UK Her Majesty’s Revenue and Customs (HMRC) should their UK pension transfer to Australia exceed the non-concessional cap.

The amount in a UK pension fund transferring to an Australian superannuation QROPS scheme must not exceed the Australian non-concessional cap of A$150,000 a year. The exception to this is that anyone under the age of 65 can contribute 3 years worth of the annual cap (A$450,000) in one year – providing that no subsequent transfers in or further concessional contributions are made in the following 2 years.

Should the non-concessional limit in an Australian QROPS be breached, as a result of a UK pension transfer to Australia, then the ATO charge the pension member 46.5% tax on the excess.

This chargeable amount is either paid from the scheme directly to the ATO or paid to the scheme member to pass on to the ATO to cover their tax liability. In either event, should this be paid within the QROPS 5-year reporting period, the member would be subject to an HMRC unauthorised payment charge on top of the Australian excess charge.

It is important for UK pension members to receive specialist advice from a firm such as Global QROPS Ltd, prior to migrating to Australia, to ensure they are not subject to unnecessary tax penalties in two countries.

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Does a UK Pension Transfer to Australia have to happen within 6 Months?

Thursday, October 8th, 2009

Many people, that Global QROPS Ltd’s advisers speak to, are under the impression that a UK pension transfer to Australia has to completed within 6 months of the pension member’s arrival in Australia

Some people are not sure exactly why this is the case. The understanding varies from ‘if I do not complete a UK pension transfer to Australia in 6 months, I can not do it ever’ to ‘if I transfer my pension to Australia after 6 months, Australia will tax 50% of my fund.’

Neither of the above statements is true. The truth is that a UK pension transfer to Australia, completed 6 months after the member’s arrival, can be a bit more complicated but not necessarily detrimental to the member or the fund. Indeed, before you transfer your fund to Australia you should stop to consider if this is the correct thing to do.

Although Australia could impose a tax on any growth that your UK fund may have achieved, from the date of your arrival until the UK pension is transferred to Australia (after 6 months) this may be a small amount compared to the hit you could have taken on the £ to A$ exchange rate or early exit penalties from your UK scheme.

Global QROPS Ltd can offer unbiased, pre-migration advice as to whether a UK pension transfer to Australia is right thing to do, in the first place and, if it is, we can advise when it is the most appropriate time.

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